HO_08_201_Sp03 - Would this firm be able to pay interest to...

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Cal Poly Pomona, EC 201 Principles of Microeconomics – Professor Brown Handout # 8 1) a) Consider the diagram depicting the single producer in a market with high barriers to entry and no good substitutes. Show the profit maximizing level of output on the graph (label this Q M ) and the economic profit (as a shaded rectangle) of this unregulated monopolist. The above depicts a natural monopolist. How do we know (refer to the ATC curve(. b) In a competitive market, a price ceiling will cause a shortage. What is the effect in the model of natural monopoly if government regulates the firm’s price so that P = ATC where it crosses the demand curve? What would profits be?
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Unformatted text preview: Would this firm be able to pay interest to its bondholders, and/or dividends to its stockholders? Briefly explain, relating your answers to the difference between accounting costs (and profit) and economic costs (and profit). 2) Consider the diagram depicting a monopolistic competitor firm with a down-sloping demand for its brand. Show the short run profit maximizing level of output and price charged for the firm above. How do we know the above Monopolistically Competitive firm is not in long run equilibrium above? What happens to move this firm toward long run equilibrium? ATC $/Q Q - output MC = AVC D MR ATC $/Q Q – output of brand X MC D MR...
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